ITO, CHENNAI V. Aarkey Mills, Somanur

ITA 375/CHNY/2016

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6516 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-08-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N V BALAJI
• Keywords: Unexplained investment; Revision of order
• Section: 143(3)

Judgement Text

आयकर अपीलीय अिधकरण ’ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI माननीय,ी महावीर िसंह, उपा23एवं माननीय ,ी मनोज कु मार अ7वाल ,लेखा सद: के सम3। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ITA No. 375/Chny/2016 (िनधाCरणवषC / Assessment Year: 2007-08) ITO Non-Corporate Ward -4(1), Coimbatore बनाम/ V s. M/s. Aarkey Mills 284-A, PalangaduThottam, Kalipalayam,Somanur – 641 668. थायीलेखासं./जीआइआरसं./P AN /GI R No. AAE F A- 5 7 5 2 - B (अ पीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Appellant by : Shri. AR V Sreenivasan (Addl. CIT) – Ld. DR थ कीओरसे/Respondent by : Shri. N V Balaji (Advocate) & Ms. N V Lakshmi (Advocate) – Ld. ARs सुनवाईकीतारीख/ Date o f Hea rin g : 18-05-2022 घोषणाकीतारीख / Date of Pronouncement : 16-08-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by Revenue for Assessment Year (AY) 2007-08 arises out of the order of learned Commissioner of Income Tax (Appeals)-3, Coimbatore [CIT(A)] dated 19.11.2015 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 31.03.2013. The grounds raised by the revenue read as under: ITA No.375/Chny/2016 - 2 - 1. The order of the CIT(Appeals)-3, Coimbatore is against law, facts and circumstances of the case. 2. The ld. CIT(Appeals) erred in deleting the addition on account of difference of yarn in Stock. 3. The ld. CIT(A) should have appreciated the fact that the assessee during the course of assessment U/s 143(3) r.w.s. 263 failed to reconcile the stock position as on the date of survey as per the books and the stock determined by the Survey Party even though the Assessing officer time and again it was asked for. 4. The ld.CIT(A) erred in deleting the addition made by the Assessing officer on account of unaccounted investment in cloth. The ld.CIT(A) failed to appreciate the fact that assessee should have held only 2,90,886 meters of cloth as on 31-3-2007 according to the working made by the Assessing Officer based on the material furnished by the assessee during the course of survey and also on various dates on subsequent hearings. 5. The ld.CIT(A) erred in deleting the addition made by the Assessing Officer on account of suppression of production of cloth. The ld.CIT(A) ought to have understood the fact that the Assessing Officer has arrived at the figure of Rs.1,72,11,950/-based on the material furnished by the assessee during the course of survey and also on various dates on subsequent hearing. 6. In the above circumstances, it is prayed to restore the order of the Assessing Officer and to withdraw the relief given by the CIT(Appeals) and to pass such other order/orders and render justice. 2. Drawing attention to the grounds of appeal, Ld. Sr. DR assailed the relief granted in the impugned order. The Ld. Sr. DR also filed written submissions. The Ld. AR, on the other hand, controverted the arguments of Ld. Sr. DR and submitted that stock records were produced before lower authorities and the discrepancies in stock were duly reconciled. Having heard rival submissions and after perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident firm is stated to be engaged in manufacturing of cloth. It was assessed u/s 143(3) on 09.04.2009 accepting the returned income of Rs.69.99 Lacs. However, the order was subjected to revision u/s 263 on 03.11.2011 directing Ld. AO to redo the assessment Accordingly, consequential assessment was framed u/s 143(3) r.w.s. 263 on 31.03.2013. 3.2 The assessee was subjected to survey on 16.02.2007 in the business premises of the assessee as well as its sister concern M/s ITA No.375/Chny/2016 - 3 - Amarjothi Textiles. Both the units were housed in the same premises. Both the concerns admitted additional income of Rs.131.33 Lacs for excess stock. The excess stock of Rs.120.10 Lacs was stated to be held with weavers whereas the remaining excess stock of Rs.11.23 Lacs was found in the godown. However, the admission was retracted about 5 months later. 3.3 Pursuant to the directions given in revisional order u/s 263, the assessee was required to produce all the books of accounts and other documents that were impounded during the course of survey. However, the assessee only filed certain details. In the said background, Ld. AO proceeded to examine the issue of stock difference found during the course of the survey. 3.4 It was noted that there was common stock and the inventory was obtained for both the concerns together. The survey team valued the assessee’s stock at Rs.106.48 Lacs (para 8.1 of the assessment order) and consolidated trading account was prepared on the date of the survey wherein a difference of Rs.530.81 Lacs was noted. Considering the same, the partners made admission of Rs.131.33 Lacs being the difference in the stock. However, the admission was retracted later on and the same was not honored. 3.5 During the course of assessment proceedings, the assessee was required to reconcile the difference between two stock statements i.e., one taken on the date of survey and another furnished by the assessee during the course of regular assessment proceedings. However, except for mere submissions that everything was explained, the assessee could not furnish the reconciliation. The Ld. AO quantified difference in stock of yarn at year-end at Rs.266.44 Lacs whereas the difference in cloth was ITA No.375/Chny/2016 - 4 - quantified at Rs.6.06 Lacs.The assessee disputed that the stock of 107726 meters of cloth as arrived at by survey team was not correct and the same should have been 138034 meters of cloth. The assessee also assailed the valuation of Rs.20/- per meter as adopted by survey team to arrive at the value of cloth. Similar plea was raised with respect to variation in the quantity of yarn. It was also submitted that various stages of production were to be analyzed before arriving at the stock figures. In nutshell, it was the submission of the assessee that the stock was not taken correctly by the survey team and the adopted rates were arbitrary. Various other discrepancies were pointed out by the assessee. 3.6 However, Ld. AO worked out that average production of cloth per kilogram of yarn should have been 4.678 per Kgs and actual production should have been 2561425 meters. There was shortfall in production to the extent of 861459 meters which, at average saleprice of Rs.19.98 per meter, would work out to Rs.172.11 Lacs. The difference in quantity of yarn was quantified at 296046 Kgs at the rate of Rs.92.697 per Kg which translated into another addition of Rs.272.42 Lacs. The unaccounted investment in cloth was quantified at Rs.6.05 Lacs.In other words, the assessee as saddled with addition of Rs.452.60 Lacs. 4. Appellate Proceedings (i) Difference in Yarn During appellate proceedings, the assessee submitted that Ld.AO omitted to take the stock at godown to the extent of 303628 Kgs. Another contention was that stock found with weavers was taken erroneously. It was contended that the difference arose mainly due to non-consideration of the updated books of the assessee after taking into account stock available with the weavers. The Ld. CIT(A) noted that corresponding ITA No.375/Chny/2016 - 5 - enquiry with the weavers was not made by Ld. AO. The tallied items and quantity wise stock in the updated books were made available to Ld. AO. The stock as per books at 124523 Kgs could not be controverted by Ld. AO with cogent evidences. The excess stock as computed by AO was without taking into account stock received from weavers which was not entered in stock register and hence the discrepancy. The work in progress as computed by Ld. AO at 93524 Kgs was incorrect computation since the assessee has worked out stock of 145709 Kgs. The closing stock of warp yarn with weavers is converted into 145709 Kgs. The computations made by the assessee were supported by the entries in the books of accounts which had not been stated as unreliable. Accordingly, the difference on thisaccount was to be deleted. (ii) Undisclosed investment in cloth The assessee computed this addition to the tune of 30308 meters @Rs.19.98 per meter which translated into addition of Rs.6.05 Lacs.The assessee assailed the same on the ground that the assessee declared closing stock of 321194 meters as against the conclusion of Ld. AO that the stock should have been 290886 meters. For the said reason, the addition alleging unexplained investment in cloth does not arise. Therefore, this addition was deleted. (iii) Suppression of Production of Cloth The assessee assailed the addition on the ground that computation of Ld. AO assume consumption of 7.49 meters for every Kilogram of yarn after the period of survey. The assessee submitted that the finished product was not homogeneous and comprises different quality of products. Concurring with the same, Ld. CIT (A) held that assumption of ITA No.375/Chny/2016 - 6 - constant input-output ratio in such a case would be unscientific since it is not based on any material evidence. Therefore, the addition was deleted. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 5. Upon due consideration of material fact, it could be seen that the assessee was surveyed on 16.02.2007 wherein excess stock was found. Considering the same, the assessee admitted income of Rs.131.33 Lacs which was, later on, retracted and not honored. 6. The assessment was framed u/s 143(3) accepting the returned income. However, the order was subjected to revision on 03.11.2011 since necessary verifications were not carried out. The consequential assessment was framed u/s 143(3) r.w.s. 263 on 31.03.2013. In the said assessment, the assessee was required to reconcile the difference in stock. However, except for mere submissions that everything was explained, the assessee could not furnish the reconciliation. Accordingly, Ld. AO proceeded to compute the difference in stock of yarn and cloth and arrived at addition of Rs.452.60 Lacs. We find that the onus was on assessee to reconcile the stock which could not be discharged by the assessee before Ld. AO. 7. We further find that Ld. CIT(A) has rendered its finding merely on the basis of submissions made by the assessee. The stock discrepancies were noted by survey team which were not rebutted by the assessee in its statement recorded on 16.02.2007 and 19.02.2007. Rather the onus was put on Ld. AO that no third-party enquiry was made overlooking the fact the primary onus remained undischarged by the assessee. Even in the audit report, it has been reported by the Auditor that no detailed manufacturing account for Yarn converted into cloth was ITA No.375/Chny/2016 - 7 - made available for verification. The valuation of stock has been taken merely on the certification of the partner. It has also been mentioned that the details of material consumed and finished goods produced were not available. Therefore, the submissions that there was omission of stock of 303628 Kg of stock in godown could not be accepted on mere submissions of the assessee. The other observations / findings in the impugned order are also not fact-based finding rather the same are on the basis of submissions made by theassessee. 8. Considering the entirety of facts and circumstances, we are of the opinion that the impugned order is to be set-aside and the matter has to be restored back to Ld. AO for fresh adjudication. The assessee is directed to reconcile its trading results including quantitative details and stock discrepancies as found by the survey team. Needless to add that adequate opportunity of hearing shall be granted to the assessee. 9. The appeal stand allowed for statistical purposes. Order pronounced on 16 th August, 2022. Sd/- (MAHAVIR SINGH) उपा23 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद: /ACCOUNTANT MEMBER चे,ई/ Chennai; िदनांक/ Dated : 16-08-2022 JPV JPVJPV JPV आदेशकीWितिलिपअ7ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant2. यथ /Respondent 3. आयकरआयु (अपील)/CIT(A) 4. आयकरआयु /CIT 5. िवभागीय ितिनिध/DR6. गाड फाईल/GF